Estate Planning

At death, you're deemed to have disposed of all your capital property at fair market value the day before death, triggering capital gains tax on accrued unrealized gains (and recapture of CCA on depreciable property). The result can be a large terminal-return tax bill, sometimes exceeding 25% of the estate's value for high-asset estates. Common minimization strategies include: rollover to a spouse or spousal trust (defers tax until the spouse dies or sells), use of the lifetime capital gains exemption on QSBC shares ($1M+) and qualified farm/fishing property, designating life insurance as a tax-free funding source for the estate's tax bill, charitable bequests (which generate large donation credits to offset the terminal tax), and multi-generational planning structures (estate freezes, family trusts). RRSPs and RRIFs roll over tax-free to a surviving spouse or financially-dependent child, but otherwise are fully included in the deceased's terminal income, a significant tax cliff.

Yes, in some scenarios, but the benefits are narrower than they were before TOSI. A discretionary family trust holding shares of an operating CCPC can: (a) multiply the lifetime capital gains exemption across multiple beneficiaries on a future qualifying sale (potentially saving hundreds of thousands in tax), (b) provide flexibility to direct future capital appreciation, (c) protect assets from a beneficiary's creditors or marital breakdown. Trade-offs: ongoing administration cost ($1-3k/year for T3 returns and trustee duties), the 21-year deemed disposition rule (the trust is deemed to sell its property at FMV every 21 years), TOSI restrictions on dividend distributions to most family members, and the irrevocable nature of trust planning decisions. They make most sense for businesses with significant accrued goodwill where a future sale is plausible, not for cash-flow service businesses with little build-up of corporate value.

An estate freeze locks in the current value of your corporation's shares at today's fair market value (typically by exchanging your common shares for fixed-value preferred shares using a Section 86 reorganization), then issues new common shares to a family trust, your spouse, your children, or a holdco to capture all future growth. The result: future appreciation accrues outside your hands, so the deemed disposition at your death is limited to today's frozen value rather than a much larger future value. This can defer or split substantial capital gains tax. Freezes typically make sense when: the business has reached a point where future growth is likely meaningful, the owner-manager wants to start the next-generation transition, or the lifetime capital gains exemption could be multiplied by including a trust. They're complex transactions requiring careful valuation and structuring, and once done, they're hard to unwind.

A testamentary spousal trust receives some or all of your assets at death, with your surviving spouse as the sole income beneficiary during their lifetime, and capital ultimately distributed to children or other beneficiaries on the spouse's death. Key benefits: assets transfer at your cost base (no immediate capital gains tax on those assets), income earned by the trust can be taxed in the trust at graduated rates for up to 36 months (Graduated Rate Estate rules), and the trust controls who receives the capital after your spouse. Useful for blended families or where you want to ensure children from a prior relationship inherit. After 36 months, trust income is taxed at the highest marginal rate. Drawbacks include ongoing T3 trust returns, trustee fees, and complexity. They're most valuable for blended families, larger estates, or where post-death control matters more than simplicity.